Only a few months ago, billionaire Sergei Polonsky, the developer behind an array of gleaming Moscow skyscrapers, seemed invulnerable.
But now that the global financial crisis is hitting Russia, he has warned that the country’s construction industry is “on its knees” and begged journalists for help in a bid to stave off disaster.
“The future and success of builders depend on you, dear journalists!” the 35-year-old tycoon pleaded in an open letter posted on his blog this month and republished in the Russian press.
PHOTO: AP
“We ask you to cover our industry wisely and to paint things in a positive light,” said the owner of Mirax Group, whose projects include Federation Tower, which it says will be Europe’s tallest building at more than 500m high.
After a decade-long boom that turned Moscow into one of the world’s most expensive cities, Russia’s real estate sector has experienced the contagion of the US subprime crisis.
It is a worrying trend in a country where many have ploughed their savings into apartments rather than bank accounts and where officials once boasted the oil-driven economy would be an “island of stability” amid global turmoil.
The credit crunch has been rough on property developers, whose share prices have tumbled since the beginning of the year, some by as much as 90 percent.
“Whatever credit lines were available to developers until very recently have all but disappeared,” Renaissance Capital, a Moscow-based investment bank, said in an advisory note earlier this month.
“We believe the sector is likely to experience a wave of delayed completions and project freezes, potential forced sales of development portfolios as well as smaller players’ bankruptcies,” the bank said.
Even as the Russian government has poured billions into the banking sector, property developers were unlikely to get such treatment, said Barry Schumaker, an analyst at Moscow-based investment bank Uralsib.
“The government is going to stand behind the banks before it stands behind the real estate companies,” Schumaker said.
Schumaker predicted that the hardest-hit firm would be Mirax Group, whose owner Polonsky was said to be worth US$1.2 billion by Forbes magazine this year.
“They’re struggling, they basically have to curtail their projects,” the analyst said. “Mirax [was] one of the most aggressive developers going into this problem and they didn’t accept it soon enough.”
Smaller players have not been spared either.
“Of course, we feel the crisis coming,” said Fyodor Indukayev, head of a small real estate agency in Moscow. “We have already sold some [properties] at a loss.”
The impact is likely to be felt in residential property too: the business daily Vedomosti reported on Friday home prices would fall from 15 percent to 20 percent by the end of this year.
Russian officials have promised help, including President Dmitry Medvedev.
On Thursday he named construction as one sector of the “real economy” which needed government assistance in dealing with the credit crunch.
“Effective enterprises and private entrepreneurs should not experience financial hunger, and we should undertake all the necessary, sufficient efforts” to prevent this, Medvedev said.
The Moscow city government also plans to aid struggling developers by buying US$2 billion worth of land and apartments from them by the end of this year, Vedomosti reported.
One of the developers to get help is Mirax, whose owner summed up the situation succinctly in his open letter to journalists.
“It is a frightening picture,” Polonsky wrote.
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